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China Overnight Rate Snaps Five-Day Drop Before Month-End

China’s overnight money-market rate rose for the first time in six days on speculation cash supply will wane as banks hoard funds to meet month-end requirements.

The measure climbed from the lowest level since Aug. 9 even after the central bank added 29 billion yuan ($4.7 billion) to markets yesterday via seven-day reverse-repurchase contracts. The People’s Bank of China asked lenders to submit orders today for 14-day reverse repos and 28-day repo agreements, and gauged demand for 91-day bills, said a trader at a primary dealer required to bid at the auctions.

“Commercial banks are reluctant to lend in the interbank market before month-end,” said Xu Hanfei, a Shanghai-based analyst at Guotai Junan Securities Co. “Funds will be tightly balanced.”

The overnight repurchase rate, a gauge of funding availability in the banking system, rose eight basis points, or 0.08 percentage point, to 3.1 percent, according to a weighted average compiled by the National Interbank Funding Center. It fell to as low as 2.9 percent earlier. The seven-day repo rate increased five basis points to 4.3 percent.

The cost of one-year interest rate swaps, the fixed payment needed to receive the floating seven-day repo rate, climbed one basis point to 4.09 percent, data compiled by Bloomberg show.

The central bank auctioned 50 billion yuan of treasury deposits at 4.75 percent yesterday, offsetting the impact of rolling over 51.5 billion yuan of three-year bills on Aug. 26. That was the second time the authority extended the maturity of some bills this month.

The yield on the government’s 3.38 percent notes due May 2023 advanced three basis points to 4.02 percent, according to the Interbank Funding Center.

China should gradually raise the ceiling on deposit rates, and widen the yuan’s trading band, according to an article published on People’s Daily, which was written by Wang Yu, an official from the central bank’s research bureau.

To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net

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